How Personnel Costs Impact Your Bottom Line

Whether you are a business operating in the private sector, or a municipality, personnel costs has a huge impact on your bottom line. Roughly 70% of most municipal budgets is used for personnel expenses, such as payroll and benefits. This is not far off from the expenses incurred in the private sector for personnel and their related expense. Private companies report that 40% – 80% of their operating budget is absorbed in personnel overhead.

Office workers

One thing public and private business have in common is the importance of their employees.  The staff of any business is your biggest asset or your biggest liability. It does not take department changing restructuring to make positive changes on your bottom line. Small but significant adjustments allow you to improve your profits while providing the quality benefits to your employees.

How to manage personnel costs better

Outline and analyze personnel costs. Look beyond salaries, at all the variables.  Some costs and expenses are fixed, but others are ever-changing.  Some expenses are “one-time” expenses, while others are ongoing. Yet we lump all of these expenses into one budget and fail to realize there are areas in which we can improve. Analyze each department, individually. Begin with your Human Resources department, as this is the heart of your personnel.

Carefully look at each benefit you freely give.  Do you offer paid breaks and paid lunch hours?  How much money can you save by omitting that expense? Do you immediately give every new employee full benefits at a certain period of time? This means, an employee that hits the 90-day mark, for example, immediately has the same benefit options as a 25-year veteran employee. Would staggering the benefit time periods save you money?  Consider employee turn-over before you answer.

Experienced business managers know, it takes a full year of employment, before a staff member becomes trained, and productive, and begins to make a profit for his employer. A terminated employee (or one who quits) costs a company big bucks. Using staff to recruit, hire, and train their replacement, costs 150% of their salary. It is wise to keep staff when you can and to hire with caution.


When looking at changes in benefits, salaries, and perks, keep morale in mind. Radical changes can upset your entire staff. Consider small changes that have minimal effect on staff, but significant impact on profit. Consider changes that affect new employees coming on board.  It is always easier to give a benefit than to take one away. An employee who has not experienced paid breaks will be less likely to complain than one who has had them for years, but no longer does. Some budget cuts are hard to do and there is no easy way to do them. But if there is an easy avenue, take it.

Optimizing Staff

There are many tools at your disposal. Consider time management software to ensure you are getting the most from your staff. Your staff, like your human resource team, for example, are highly trained professionals. They have vast knowledge and skill sets. However, many companies fail to allow them to use those skills. They are used as transitional, paper pushers. Include them in the process of budgeting, positional control, and analyzation of employees.

Encourage department managers to outline the responsibilities of each of their employees. Is there wasted time, handing off projects from one employee to another? Where are the company dollars being wisely spent and where can adjustments be made that allow staff to work more efficiently?


Take advantage of the tools that are available today and take an honest look at how your personnel cost are possible. The result will be more profit and job security for the staff you have grown to care about as your professional team.


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